Carl Richards on Conquering Investing Mistakes and Learning to Talk About Money

Carl Richards has a few thoughts on how we might get around some of our own bad money habits, and he shared them in the video discussion below. A student of behavioral finance, Richards combines that interest with the practical experience of working as a financial advisor in Park City, Utah, where he sees plenty of these concepts playing themselves out in all the wrong ways in his work at Prasada Capital Management.

He’s also a regular contributor to the New York Times’ Bucks Blog, and publishes his own newsletter and sells originals of his investing sketches at Behaviorgap.com.

We last talked to Carl in September when he gave us his thoughts about the upcoming release of Wall Street 2 and whether greed is ever good. (His answer: No.) I was glad to catch up with him on November 12 to talk a bit about a new series of commentaries he’s doing on the topic of conversations about money at Behaviorgap.

Few of us are very good at entirely removing emotion from our investment decisions, but in our chat Richards said that he most often finds emotions get in the way when people are either a) dealing with investments they inherited, or b) completely over-invested in one company, usually an employer. No one, no matter how much they believe in Apple, for example, should be 90% invested in that stock. Whether the stock doubles or goes to zero, there’s no way to know. What you can know is that you’re taking on way too much risk in that kind of position, and that everyone’s investments should be customized to their situation.

Here’s how Richards captures the sentiment in one of his signature doodles:

One practical step to take: “the overnight test.” Imagine that while you were sleeping one night, all your investments were sold and in the morning you had only cash. Where would you invest it? Would buy again that stock Dad bought 10 years ago? Would you buy as much of it? Remember your investments have to fit you.

It’s not only in our investments that we too often let emotion rule. Richards argues that in our financial conversations in general we too often fall into discussing a certain purchase, and too rarely discuss in earnest our financial state and aspirations. It can be helpful to set a certain time aside to regularly discuss the topic in some neutral environment. But the most important thing is not to let the complexity of modern finance scare you away from thinking about your finances and your financial future. It’s ok to keep your investing simple, he notes, quoting a Jack Bogle insight, but it’s not ok to ignore it.

For much more from Richards on these topics, please watch this video. And be sure to add your thoughts to the comment box. How do you keep money and investing conversations productive, not emotional?

One thought on “Carl Richards on Conquering Investing Mistakes and Learning to Talk About Money

  1. Pingback: “A Little Late” by Carl Richards « Portfolio Investing Blog: Portfolioist

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